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Providing Pensions for Your Employees Under the New UK Regulations

20150825 - pension change in the UK, stacked coinsThe latest changes to workplace pensions mean every employer now has to contribute to staff pensions. Before June 1st companies with less than 30 employees were exempt from the auto-enrolment scheme, but this has now changed. Which means, even if you hire a nanny or a carer, you will need to contribute to their pension as an employer.

Figures suggest this is causing small business owners a real headache though, with 44% of employers still unprepared or confused about auto enrolment. It doesn’t help that the process is typically confusing – as with most financial regulations – especially when hefty fines could come your way if you’re not set up in time.

What are the rules for employers?

Since June 1st almost every employer has been required to enroll staff members who meet the following criteria:

  • Aged between 22 and state pension age
  • Earn more than £10,000 a year
  • Work in the UK

These are the conditions set out on the website, but there’s more to it than this. You’ll need to cross reference the age and wages of all your employees to know your obligations and this guide will give you a more accurate picture.

Regardless of criteria employees are entitled to opt out of your scheme at any time, while those who don’t qualify for automatic enrolment can also choose to opt in. The important point is that, as an employer, you are not allowed to influence these decisions in any way.

How much do I have to pay?

You have a minimum requirement of contributing 1% of your employees’ earnings above £5,824, with a limit of £42,385. This will rise to 2% in October 2017 and once again to 3% in October 2018. Your employees will start by contributing 0.8% of their wages, but this figure will eventually rise to 4%, while a government tax relief will make a small additional contribution.

When do I need to start enrolling my staff?

Chances are you already know the date your duties come into effect. It’s officially called your staging date and you can normally find it on the letters you receive about automatic enrollment. If you’re not sure when your staging date is, you can find it here using your PAYE reference or, if you don’t pay through a PAYE scheme, your staging date will be 1 April 2017.

Companies who miss their staging date or refuse to comply risk heavy fines, as many firms are finding out the hard way. To make sure you don’t end up with a penalty notice you need to meet the deadline and the process can take some time – so planning and prompt action are both important.

Tips to meet your staging date and make auto enrolment work

The most important thing you can do to make auto enrolment work is to start planning early and The Pensions Regulator says you should allow up to 12 months to get things up and running. There are ways you can speed up the process and make auto enrollment simpler for everyone though – here are some key tips to follow:

  • First of all seek help if you’re unsure about anything or you’re worried you don’t have enough time – especially if this is your first workplace pension scheme.
  • Get your data in order – the last thing you want is a fine because your payroll data isn’t accurate.
  • Shop around for pension providers, even if you already have a pension scheme in place. At the very least make sure any scheme qualifies for auto enrollment and the supplier is willing to extend it to all your staff.
  • Speak to your staff and tell them where they can find more info about how auto enrollment affects them.
  • Encourage staff to go digital – there’s no need to print and post mail when you can email the formalities to everyone at one. Last year, Aegon opened its Retiready digital pension dashboard to workplaces, creating another way for your employees to manage their money.
  • And finally, consider paying more than the minimum contribution if you’re worried about staff morale, turnover or you want to make your positions more attractive.

While auto enrollment looks like a complicated process at first glance, you’ll soon see things progress quite smoothly, as long as you start the planning process early enough. So don’t let it slip down your list of priorities and get things moving today.

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My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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